What is SAP S/4HANA? Deployment, pricing, customers and benefits

For more than four decades enterprise resource planning (ERP) software has been the lifeblood for German technology vendor SAP.

That's why the release of its next generation ERP system, called S/4HANA, in February 2015 was hailed by CEO Bill McDermott as the firm's "biggest launch in 23 years, if not in the entire history of the company".

So what makes S4/HANA different from the past generations of SAP ERP systems? The biggest clue is in the name. The underlying HANA data store, which was first released by SAP in 2010, is built on a fundamentally different architecture to your classic relational database. It runs in-memory, with data stored in columns, allowing for faster, near to real-time analytics and compute capabilities.

With S/4HANA, SAP promises to deliver all core ERP capabilities in one place, with one underlying data store.

However, SAP has had trouble convincing customers - many of which are already locked in to their existing ERP deployments and licensing agreements - to move precious assets to S/4, let alone the cloud.

S/4HANA deployment options

SAP customers can now deploy S/4HANA in their own data centre, SAP's private Enterprise Cloud platform, or in the public cloud, either fully managed on the SAP Cloud Platform, or via 'bring your own licence' to be deployed on the IaaS provider of their choice: AWS, Microsoft Azure, IBM or Google Cloud.

Cofounder and chairman of the SAP advisory board Dr Hasso Plattner has even admitted that "in the cloud is our version to aim for" when it comes to getting customers onto S/4HANA.

Benefits

The primary benefit of S/4 is that it runs in-memory, giving enterprises a centralised, streamlined business suite powered by close to real time data, which is especially useful for firms looking to take advantage of growing data streams - like online sales - or asset information coming from internet of things (IoT) sensors.

At the time of release Plattner evangelised: "In this new system layout, satellite applications do not need their own instance, which furthermore decreases the data volume.

"It also means that only a single database is needed: SAP HANA. As a matter of fact, applications and database will grow together and there will be no distinction between application and database layer."

SAP is also focusing heavily on machine learning 'scenarios' to help customers on their automation journeys.

Starting with the introduction of machine learning-powered capabilities into S/4HANA with the 1709 release in September 2017, SAP has since brought dozens of pre-packaged machine learning-powered solutions with every release.

In the 1805 release of S/4HANA Cloud in May 2018, SAP included 12 new 'scenarios' to help customers optimise common processes. Nine of which are machine learning solutions and three are CoPilot 'conversational UI scenarios'.

Then in the 1808 release nine more scenarios were added, aimed mainly at its core manufacturing sector. This includes AI to evaluate and adjust capacity, buffer adjustments and manage inventory.

For example, finance can now perform automatic account reconciliation powered by machine learning, with the system making recommendations, instead of relying on manual resolutions, and project managers can use an AI-powered project cost forecasting feature which promises to reduce budget overruns.

Customers

After a slow start, S/4HANA adoption is surging. According to SAP's April 2018 Q1 results, adoption of S4/HANA was up 43 percent year on year to reach 8,300, of which around a quarter are live in production.

One early customer of S/4HANA was plane manufacturer Airbus. It reported an improvement in reporting and data load processing for its HR department after replacing its Oracle database with SAP HANA during the SAP Insider tour in Nice in June 2015.

Since then, professional services firm Deloitte has committed to shift from SAP's R/3 to S/4HANA as it looks to bring consistent finance processes to all staff at the global organisation.

Migration

SAP customers have long complained that the migration roadmap for S/4HANA has lacked clarity.

The German company responded in late 2016 with a new SAP Transformation Navigator tool. The idea is that customers lay out their technology landscape for SAP and are then given recommendations for where they should prioritise a shift to S/4HANA and where they can afford to wait.

SAP roadmap lead Peter Maier told Computerworld UK that the feedback they often get is: "SAP, please make sure you give us much more guidance and less choices moving forward."

Simply put, Maier wants the navigator tool to say "here is the solution, the integration and here is how to get from A to B".

SAP also provides a whole host of managed migration services, such as the SAP advanced SQL migration, the SAP database migration factory and access to its specialised teams the Digital Business Services banner.

Pricing

SAP has been busy trying to modernise its pricing and licensing practices to reflect a more modern ERP system, which is often deployed in the cloud.

Hala Zeine, SAP corporate development officer wrote in May 2017: "In an agile world where digital reigns supreme, licensing complexity is getting in the way of innovation... Our objective was to make pricing predictable, linked to unit of value, transparent, and consistently applied.

"We believe value is measured by outcomes. Therefore, our pricing model for the Procure-to-Pay and Order-to-Cash scenarios in ERP (ECC or SAP S/4HANA) will now be based on orders, a measurable business outcome for any business."

As a result the new pricing model, announced in April 2018, is based on usage and outcomes instead of users and seats.

SAP refers to this model as 'document-based' where the "use of the ERP system through indirect digital access will be licensed based on the initial creation of these documents, and the document licence value is based on the total number of documents created," according to the vendor.

These documents relate to what the vendor has identified as nine key business outcomes associated with an ERP system.

For example, an order-to-cash process, which creates a sales document, or a plan-to-produce process, which generates a manufacturing document are now directly priceable units.

Seven of these generate a simple pricing multiplier of 1, but to make matters more complicated 'financial' and 'material' processes are deemed less valuable and are assigned a 0.2 multiplier.

Crucially, all read, updates, and delete actions to that initial document via indirect access (so via a third party application such as Salesforce CRM) do not incur an additional charge.

Customers hoping for a simple pricing sheet may be accused of wishful thinking, however.